Brent falls on weakening demand prospects

Front-month ICE Brent has declined by $2.09/bbl on the day, to $91.28/bbl at 09.00 GMT. The futures contract is on track to hold steady on the week.

PHOTO: US Federal Reserve building. Getty Images

Upward pressure:

Concerns that the US is drawing down its strategic petroleum reserves (SPRs) to critically low levels have actually boosted Brent. This has run counter to Joe Biden's intension of cooling prices by announcing another 15 million-bbl SPR release.

"Realistically an SPR release is near-term bearish, long-term bullish because eventually you’re going to have to buy it back," Tradition Energy director Gary Cunningham told Reuters.

Commercial US crude oil stocks were unexpectedly drawn by 1.73 million bbls in the latest week, Energy Information Administration data showed. The draw was bigger than the American Petroleum Institute’s earlier prediction of a 1.3 million-bbl drop. SPR releases accelerated to 3.56 million bbls, leaving 405 million bbls in storage.

Beijing considers cutting visitor quarantine mandates from 10 days to seven days, according to Bloomberg, citing sources familiar with the matter. It has not yet been confirmed officially, but if true it could spur more travel. This could be the “first positive sign we have seen out of China on the Covid front," SPI Asset Management's Stephen Innes said.

Downward pressure:

According to the Federal Reserve's (Fed) Beige Book economic report, the economic outlook is "more pessimistic" amid growing concerns about weakening demand.

Morgan Stanley predicts the Fed will hike its key interest rate by 75 basis points in November, 50 basis points in December, and 25 basis points in January due to persistent core inflation pressures.

Goldman Sachs chief executive David Solomon has urged caution as there is a "good chance" of a US recession next year. He is uncertain whether high inflation and slow growth are long-term or short-term pressures.

By Konica Bhatt

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